In an effort to bolster Hong Kong’s position as the preferred stock exchange for innovative companies from around the world, the Hong Kong Stock Exchange (HKEx) has published a consultation paper proposing a new listing regime for companies belonging to one of five specialized technology industriesI, namely: (a) next-generation information technology; (b) advanced hardware; (c) advanced materials; (d) new energy and environmental protection; and (e) new food and farming technologies.
The consultation paper was released shortly after Hong Kong’s chief executive delivered his 2022 keynote address, in which he pledged to improve Hong Kong’s financial services competitiveness by allowing large advanced technology companies to join the HKEx’s main board and attracting talent to attract.
As noted in the consultation paper, Hong Kong lags behind the US and Mainland China in terms of the number and market capitalization of companies belonging to Specialist Technology Industries – the number of Specialist Technology issuers (and their combined market capitalization) in US, Tue Markets in Mainland China and Hong Kong as of September 9, 2022 are 738 (HK$85.4 trillion), 451 (HK$15.3 trillion) and 99 (HK$3 trillion), respectively.
Under the new proposed system, no minimum earnings requirement will be imposed for specialty technology companies to be listed on the Main Board, but other listing requirements may differ depending on the level of commercialization.
The eligibility requirements for “Commercial Companies” (companies with at least HK$250 million in sales from their specialty technology business segment for the last audited financial year) and for “Pre-Commercial Companies” (companies that have not yet reached the threshold) are listed below:
|Admission Requirements||commercial companies||Pre-Commercial Companies||Motherboard Alternate Test|
|trading record||≥ 3 financial years||
≥ 3 financial years
|≥ 3 financial years|
≥ HK$8 billion at listing
≥ HK$15 billion at listing
|≥ HK$4 billion at listing|
|revenue||≥ HK$250 million for the most recent audited financial year||
not a requirement but must demonstrate a credible path to reaching the HK$250 million threshold
|≥500 million HK for the last audited financial year|
Working capital (including IPO proceeds) able to support at least 125% of its group’s expenses for at least the next 12 months
≥ 15% of total operating expenses for each of the three financial years prior to listing
≥ 50% of total operating expenses for each of the three financial years prior to listing
Subject to the foregoing, both trading companies and pre-commercial companies must meet the following requirements to qualify for listing:
- Continuity of Management and Ownership – The applicant should have had essentially the same management for at least three financial years prior to listing; and there should be ownership continuity and control in the 12 months prior to the date of the regulatory application; and
- Investing Wisely by Experienced Independent Investors (SIIs) – SII investments should achieve that overall prescribed minimum percentageii the applicant’s issued share capital at the listing; and at least two of whom are Pathfinder SIIs (ie, hold shares or securities convertible into five percent or more of the applicant’s issued share capital at the date of the listing application and for the entire 12 month period prior to the application).
In addition, during or after the initial public offering (IPO), the following applies to both commercial and pre-commercial companies:
- At least 50 percent of the total number of shares offered in the IPO must be allocated to independent institutional investors;
- A new mandatory initial retail allocation and clawback mechanismiii to ensure a robust pricing process;
- Minimum free float (unrestricted shares) of at least HK$600 million upon listing;
- Existing shareholders (including controlling shareholders) of a specialty technology company may participate in its IPO as placees or cornerstone investors;
- Enhanced disclosure in the listing document to facilitate determination of valuation, including, for example, implied valuation for each pre-IPO investment round, burn rate and cash operating expenses, product and commercialization status and prospects, etc.;
- Post-IPO lock-up for the following individuals:
- Majority Shareholders of Listing Applicant – 12 months for a commercial company and 24 months for a pre-commercial company;
- Key individuals (including founders, beneficiaries of weighted voting rights, directors and senior management, and key personnel responsible for technical operations and/or R&D) – 12 months for a commercial company and 24 months for a pre-commercial company;
- Pathfinder SIIs – six months for a commercial company and 12 months for a pre-commercial company; and
- Cornerstone Investors – typically for a minimum of six months;
- Additional ongoing obligations for pre-commercial companies, including additional disclosures in interim and annual reports on progress towards reaching the HK$250 million revenue threshold and updates on business and financial estimates provided in the listing document.
A new listing regime for specialist technology companies is expected to be introduced early next year. The public comment period ends on December 18, 2022.
I HKEx intends to publish a guide on the acceptable industries and sectors that would fall under this definition, which will be updated from time to time to include emerging industries and the latest technology trends within the scope of the Specialist Technology Regime.
ii The required minimum holding percentage of SIIs varies based on the applicant’s expected market capitalization at listing:
|commercial companies||Pre-Commercial Companies|
|market capitalization||SII’s Minimum %||market capitalization||SII’s Minimum %|
|≥8 billion to < 20 billion||
≥15 billion to < 20 billion
|≥20 billion to <40 billion||
|≥20 billion to <40 billion||20%|
iii The proposed new initial attribution and clawback mechanism specifically for specialized technology companies:
||Number of times (x) oversubscribed in the public subscription tranche|
10x to less than 50x
|50x or more|
|Minimum Retail Allotment as a Percentage of Total Offered Shares||